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You need more than a will to have your way

Writing a will is a significant milestone. Even so, if you've passed this landmark on the road of life, Roger McEowen wants to remind you that you still need a road map.

"A will and last testament doesn't control all of the assets you own," says the Iowa State University ag law professor and director of the Center for Ag Law and Taxation. It also doesn't set up a transfer mechanism or long-range plan for passing on the farm to the next generation."

Married women bear the brunt of inadequate estate planning. On average, women live at least seven years longer than men.

"A lot of people say, 'I know I need to do estate planning, but I don't know where to start,'" McEowen says. "So they don't do anything. You just have to dive in, and get started."

Reviewing your ownership of property, particularly real estate, is one of the first steps. "Joint property with right of survivorship passes on its own, regardless of what is written in your will," he says. "Joint tenancy property passes automatically to the surviving joint tenant. When this happens in a larger-size estate, couples cannot fully utilize the appropriate tax-planning strategies, and it loads up the estate of the second spouse to die. This is a big deal from a tax standpoint. Tenancy in common is the better choice for the larger estates."

Life insurance proceeds also don't pass according to a will. Life insurance is paid out to the named beneficiary. "Farm folks tend to be underinsured," McEowen says. "This becomes a problem if your objective is to pass on the farm intact. You don't want to have to sell farm assets to settle debts, pay taxes, or medical expenses. So, reviewing your life insurance policies to make sure there's at least some liquid funds to pay costs associated with death is another important step in estate planning."

Your will also doesn't control other types of property, including:

  • Funds from bank accounts. Change beneficiaries by filling out a form at the bank.
  • Funds from a retirement plan (IRA, 401(k), Keogh). Contact the administrator of your retirement plan to change the name of the beneficiary.
  • Investment securities (stocks, bonds). Contact your brokerage firm.

Reviewing property ownership and beneficiaries and completing a will is a good start, but more planning is needed if the next generation wants to farm, or keep the farm in the family An estate plan is the only way to accomplish your business and personal objectives. "What do you want the farm to look like, and who will still be involved in it after you're gone?" McEowen asks.

Before making an appointment with your attorney, you can save time and money by compiling an inventory of your assets, asset value, and asset ownership. "A data sheet with the names of your family members and your personal objectives will help your attorney know what you want to accomplish," McEowen says.

An estate valued at up to $2 million can be passed without any federal estate tax in 2007. That's $4 million per couple. No federal estate tax will due in the year 2010. "But in 2011, the exemption is scheduled to drop to $1 million," McEowen says. "Many expect Congress to change the federal law before 2010, setting the exemption at $3.5 million to $4 million."

He adds, "There's been a virtual revolution in estate planning over the last couple of generations. Very few farm families ever have to pay federal estate tax. But the income tax basis of property impacts everyone. The 2001 Tax Act eliminates complete basis step-up at death for deaths in 2010. So, capital gains tax will have to be paid by the heirs if they sell the inherited property. That illustrates a fundamental rule: taxes don't ever go away, they're just shifted."

Writing a will is a significant milestone. Even so, if you've passed this landmark on the road of life, Roger McEowen wants to remind you that you still need a road map.

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